Table of Contents
CHAPTER 20 Current Asset Management
Definitions
Selected Ratios: SKI Inc.
How does SKI’s working capital policy compare with the industry?
Is SKI inefficient or just conservative?
Cash doesn’t earn a profit, so why hold it?
What’s the goal of cash management?
Ways to Minimize Cash Holdings:
...Continued
What is float and how is it affected by the firm’s cash manager?
Cash Budget: The Primary Cash Management Tool
Data Required for Cash Budget
SKI’s Cash Budget for January and February
Cash Budget (continued)
Should depreciation be explicitly included in the cash budget?
What are some other potential cash inflows besides collections?
How can interest earned or paid be incorporated in the cash budget?
How could bad debts be worked into the cash budget?
SKI’s forecasted cash budget indicates that the company’s cash holdings will exceed the targeted cash balance every month, except for October and November.
What reasons might SKI have for maintaining a relatively high amount of cash?
Categories of Inventory Costs
Is SKI holding too much inventory?
If SKI reduces its inventory, without adversely affecting sales, what effect will this have on its cash position?
Do SKI’s customers pay more or less promptly than those of its competitors?
Elements of Credit Policy:
Does SKI face any risk if it tightens its credit policy?
If SKI succeeds in reducing DSO without adversely affecting sales, what effect would this have on its cash position?
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